What to Do About the Oil Crisis

April 30, 2008

Robert Reich

If the credit and housing crises weren’t enough, now oil prices are breaking through the stratosphere. What to do? The President criticized Democrats in Congress [on Tuesday] for barring oil drilling on the Alaskan tundra. If he thinks that will bring down oil prices, he’s even farther out of his mind than I feared. Even if such drilling were environmentally safe (and it’s not — remember BP?) it would amount to a miniscule addition to global oil supples.

You want to hold oil prices down? In the short term, strengthen the dollar.

So what else can we do? McCain and HRC are proposing a tax holiday on gas – so this summer you wouldn’t pay the 18 cents a gallon that would otherwise go to Uncle Sam. Talk about dumb ideas. This will only encourage Americans to drive more, thereby increasing demand and causing gas prices to rise even higher. Driving more will also put more carbon dioxide into the atmosphere, which fuels global warming. And this will cost taxpayers some $10 billion. It’s a cheap political gimmick that does nothing to stem the rising price of oil.

You want to hold oil prices down? In the short term, strengthen the dollar. Part of the reason oil prices are soaring is because the dollar is tanking. The Treasury and financial ministries of other rich countries should buy back dollars to stop speculators who are bidding the greenback down.

Over the longer term, though, China and India’s insatiable demand for oil will continue to drive oil prices up, and turmoil in the Middle East will keep them up. So there’s really only one way for us to go: Alternative sources of energy – wind, solar, biomass, water, and if we can make it safe enough, nuclear.

[Oil companies] have more money now than they know what to do with.

Why aren’t oil companies investing in these alternatives? They have more money now than they know what to do with. Their quarterly reports, out this week, will show galactic profits. But for them, basic research in alternatives is too risky. And why should we expect them to invest in alternatives to oil, anyway? They aren’t even putting as much as they did five years ago into oil exploration, as a percent of their profits. They figure the best way to keep their stock price high is to use their windfall profits to buy back their shares. This may be good for their shareholders but it’s terrible for America.

That’s why it’s time for a windfall profits tax on oil companies to finance our way to sensible and sustainable sources of energy. Forget the summer tax holiday on gas. We need a permanent holiday from oil.

Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written eleven books (including his most recent, Supercapitalism). Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s “Marketplace” are heard by nearly five million people. This entry originally appeared on his blog.